Monday, 23 March 2015 7.38 AM / FT, Published 3 days ago
“Diving oil revenues and capital outflows have depleted Nigeria's central bank reserves perilously close to below $30bn.
Less than two years ago the Central Bank of Nigeria had gross reserves of almost $50bn, but its warchest has been deflated by locals hoarding dollars as the Nigerian naira has slumped, and eroding oil revenues as crude prices have tumbled.
Analysts say that even the headline reserve figure of $30.13bn is somewhat illusory, given that it includes $2.1bn from Nigeria's Excess Crude Account and interventions in forward and swaps markets have not been fully accounted for.
Alan Cameron of Exotix, a brokerage, estimates that the true reserve figure is closer to $28.1bn, equal to just over four months' worth of imports and "fast approaching a critical level". The naira has stabilised somewhat of late, but only thanks to a 17 separate new measures and policies, he points out.
The superficial impression is one of a central bank lacking a clear strategy. Yet for all the confusion of the last few months, the reality is that the CBN is being asked to carry the burden of a very difficult adjustment on its own.
The government did little to help during the good times, in our view, running down savings when oil prices were high, and is now at a political impasse over the 2015 budget. With parliament on recess until after the poll, it could be July before the eventual 2015 budget is implemented. Until then, any talk of "austerity" should be taken with a pinch of salt.
Analysts and investors therefore widely believe that the Nigerian naira is going to be devalued further this year. Non-deliverable forwards indicate the currency is expected to fall to N263 per dollar over the next 12 months – another 32 per cent decline.”
Chart of Nigeria's reserves, courtesy of Bloomberg.